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BP faces 7-year offshore drilling ban


15 July 2010

A US Congressional committee has agreed measures that would ban BP from new offshore drilling for seven years.

The House committee on natural resources voted in favour of precluding companies with poor safety records from offshore oil exploration permits.

The proposed law does not name BP, but would apply to any company that has experienced 10 or more deaths in the last seven years.

The April explosion of BP’s Deepwater Horizon rig killed 11 workers.

Major blow

According to the draft legislation, the deaths must have taken place at drilling, production facilities, or refineries, and must have broken US health and environment laws.

he Deepwater Horizon disaster is still being investigated.

BP has already accepted its guilt in a separate accident in Texas in 2005 that killed 15 people.

Although the proposal does not affect BP’s existing US oil wells, if it became law it would be a major blow to the UK oil company, according to Evgenvy Solovyov, oil equity analyst at SG Securities.

“North America and the Gulf of Mexico are one of the cornerstones of their strategy going forwards,” said Mr Solovyov.

He estimates that over 10% of BP’s current output comes from the Gulf of Mexico

Were it not for the political fallout from the oil spill, that share would have been expected to grow over the coming years.

Key player

However, Mr Solovyov cautions that it is far from guaranteed that the committee’s draft bill will ever pass into law.

It would need to gain approval both houses of Congress before it could be signed by President Obama.

Mr Solovyov said that if the US still wants to continue expanding oil output, and reduce energy dependence on the Middle East, then there are not many other players who could step into BP’s shoes.

US oil production increased last year at its fastest rate in 40 years, thanks in large part to BP’s work in the Gulf of Mexico, where it is the biggest deep sea driller.

Chevron and Shell are also active players, but Exxon Mobil has surprisingly little presence in the Gulf.

“Smaller companies will not want to participate now,” notes Mr Solovyov. “It’s too risky for them, if [a similar disaster] could bring down a company of BP’s size.”

Unintended consequences

Another reason to doubt the political viability of the committee’s bill is the possible knock-on effects for other oil companies.

The proposed rules would also exclude from offshore drilling any company that has been fined over $10m (£6.5m) by US authorities for environmental breaches in the last seven years.

This wording would also affect BP, after an oil spill at Prudhoe Bay in 2006.

However, since the Deepwater Horizon spill began, it has emerged that there may be many old wells in the Gulf of Mexico that were not properly plugged and have been leaking for years.

If other major exploration companies are found to be responsible for these wells, they could also fall foul of this clause of the draft bill.


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